If you have — or ever want to have — a bank account, credit card, debit card, car loan, student loan, home loan, payday loan, credit report or any other financial product of any type, or if you were harmed in any way by the 2008 financial crisis, then you have a personal stake in the success of the Consumer Financial Protection Bureau.
At the moment, the watchdog agency is under threat. It's caught in a power struggle between its Obama-era holdovers and the Trump administration, which is moving to strip the bureau of its regulatory power.
The drama culminated last week when the CFPB briefly had two would-be acting directors — Leandra English, installed by the former director, and President Trump's pick, Mick Mulvaney, a longtime critic of the agency. (Mulvaney has said he would like to see the agency abolished.) Although a federal judge ruled in Mulvaney's favor on Nov. 28, English is expected to file for a preliminary injunction and to continue her legal battle to oust Mulvaney.
Consumers should hope for her success. The CFPB was created in 2010 as part of the Dodd-Frank financial reforms, for two reasons: to protect consumers of financial products — virtually every American — from being ripped off by financial predators and to help avert large-scale crashes and bailouts.
Before the bureau was established, responsibility for protecting financial consumers was divided among six different federal agencies. None of those agencies have consumer protection as part of their primary mission, and as a result, no one was really looking out for consumers. There wasn't a single entity that had the responsibility or authority to look at all financial products, let alone at the activities of banks or other financial institutions, such as mortgage companies and payday lenders.
The CFPB was created to do just that, and it quickly established itself as one of the most effective consumer protection agencies in American history. It enacted rules requiring mortgage providers to clearly disclose all their key terms in plain English, and prohibited a slew of predatory provisions and practices, such as "teaser rates." Many of the tricks and traps that ensnared so many borrowers in the subprime bubble are now outlawed. The CFPB passed similar rules for student loan providers, payday lenders and debt collection companies.
The bureau has returned almost $12 billion to more than 27 million ripped-off Americans and imposed significant penalties on wrongdoers, including a $100-million fine on Wells Fargo for creating millions of fake savings and checking accounts. It required Bank of America to pay consumers $727 million for deceptive marketing; Citigroup to pay $700 million for illegal credit card practices; and JPMorgan Chase to pay $309 million for unfair billing and an additional $50 million for illegal debt collection practices.
The CFPB is able to take on the largest, most powerful and most politically connected financial institutions in the country because of its autonomy. It has independent funding, its own legal department and a director with a five-year term who can be fired only for cause. This has insulated the CFPB from Wall Street, its lobbyists and its political allies, who have tried to kill the agency from the moment it was first proposed.
That's what the battle over the CFPB is really about: The industry simply does not want an independent, effective consumer protection cop on the Wall Street beat. It wants to keep the $12 billion it was ordered to repay Americans. It doesn't want rules that protect consumers more than their profits.
Protection of individual consumers isn't the only reason Americans should care about a strong, independent CFPB. Writ large, predatory conduct sows instability throughout the financial system, leading to crashes and bailouts. This is what happened in the years before the 2008 financial crisis. Financial predators ripped off unsuspecting and unprotected mortgage consumers, and the consumers became victims of egregious fraud. The various federal regulators did nothing. Some even stopped state regulators from enforcing their state's consumer protection laws.
The result was rampant predatory lending, the collapse of underwriting standards and the packaging, sale and distribution of fraudulent derivatives and products, all of which inflated the subprime bubble, causing the entire financial system to crash and almost leading to a second Great Depression. The chance of this happening again — in a new and different form, undoubtedly — is virtually assured as the Trump administration appears committed to crippling the CFPB and leaving consumers unprotected once again.
The CFPB isn't a perfect agency, but it has been amazingly effective in protecting consumers, stopping predatory conduct and reducing the risk of another catastrophic financial crash. Every American should want the CFPB to continue its crucial work.
Dennis M. Kelleher is president and CEO of Better Markets, a Washington-based, independent, nonpartisan, nonprofit organization that promotes the public interest in financial reform, financial markets and the economy.